The State of HD DVD

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Where Blu-ray is a freight train of unrivaled weight and marketing might, backed by 13 of the world's most well known electronics and computer makers, HD DVD is a Little Engine That Could, the product of a much smaller group of collaborators that has gotten over each obstacle by simply thinking it can. Judging from early buzz, HD DVD should have been beaten long ago. Today, though, it appears healthy and gaining in momentum thanks to lower prices, less confusion about disc standards, less in-fighting among the format's supporters and a high likelihood of cheap Chinese models arriving soon. This piece answers the following questions: How in hell has the HD DVD camp lasted this long? And how will the format's backers stay competitive in the next year in the face of cheaper and more plentiful Blu-ray players?

In my recent research into the two sides of the format war, I have tried hard to steer clear of marketing mumbo jumbo on both sides, and examine real issues. As I shared in The State of Blu-ray, there's growing disarray among Blu-ray's hardware makers and confusion about hardware versions and player capabilities. HD DVD has by contrast proven to be surprisingly elegant—at the moment best demonstrated by comparing both versions of Harry Potter and the Order of the Phoenix. There's far less confusion and potential backstabbing, but that is to be expected: There are only two household names leading the charge on the hardware side, Toshiba and Microsoft, and they are not engaged in any sort of infighting. Toshiba was one of the companies most involved with the original DVD patents, and creating HD DVD as a blue-laser extension of DVD made good business sense, though not to Sony and others who were left out of that revenue stream. Regardless of its strong roots, HD DVD is run by a smaller posse with less overall reach, so keeping things clear and tight amounts to a survival tactic.


HD DVD has three things going for it that Blu-ray doesn't:

1. Players at lower prices

There's no doubt that price is the deciding factor in an embarrassing number of consumer-electronics purchases, and HD DVD—Toshiba's players—have been priced lower than Blu-ray players from Sony, Samsung, Pioneer and others. At the beginning of November, Wal-Mart dropped the entry-level Toshiba to $99 and apparently sold around 90,000.

2. A finished spec with fully compatible players

Whereas Blu-ray bewilders me with future capability promises and current competing standards, the HD DVD spec is by contrast remarkably sound. Every player meets certain standards, and while there's no requirement for 1080p video like in Blu-ray, there is a consistent requirement of internet connectivity, dual-tuner playback and local storage, which disc makers are now using for fun—and useful—interactivity. It is also becoming typical for combo discs to be released with DVD on one side and HD DVD on the other, making them eminently more compatible. (Blu-ray can't do this.)

3. Coalition members who are not in direct competition

It's easy for the HD DVD camp to work together, since there are very few who have traditionally competed in the marketplace. Because of pricing and product positioning, Toshiba and Microsoft don't vie for the same customers at all. And as others begin to market HD DVD players of their own, they approach different customers in different ways. Of course, you could argue that competition among Blu-ray's supporters is a good thing, but it has not yet led to the holy grail of competition: discounted pricing.

Who is joining HD DVD?

Many people can name five hardware partners in the Blu-ray camp (Hint: if they start with P or S, they're in). Nobody knows who else is getting into HD DVD besides its main founders, Toshiba and Microsoft, but in fact, other HD DVD players are already starting to hit the market. Here are three key players:

Onkyo DV-HD805 ($900): distingushing characteristics include a Silicon Optix HQV Reon VX processor for upscaling old-school DVD content, and internal support for Dolby True HD and DTS Master HD Audio for natively outputting full-resolution sound. It's certainly a tweaker's special, and only makes sense if your speakers cost much much more.

Samsung BD-UP5000 Duo ($800): Since this upcoming device

famously has stated support for Blu-ray discs that Sony and Pioneer won't be able to play, it's easy to forget that it's also billed as a fully compliant HD DVD player. But the reviews say it's a winner in both arenas.

Venturer SHD7000 player ($200): Who? Exactly. That's what they said about Apex Digital when it came out with the super cheap DVD player. Venturer is living up to its name as the first cheap Chinese player to infiltrate American retailers but signs say it will not be the last.

What about Microsoft?

Microsoft's role in HD DVD may seem a bit mysterious. Besides selling the Xbox 360 HD DVD add-on drive, Microsoft helped write the HD DVD video spec, including VC-1 compression. It also licenses the HDi runtime engine, developed with Toshiba, that enables interactivity on Toshiba players and those of other licensees. HD DVD players don't have to have HDi, but at the moment, it's obviously the software with the most momentum. And software is the key to HD DVD's current successes.


Toshiba's HD-A1 and HD-XA1 players, rolled out first in the spring of 2006, were based on a 2.4GHz Pentium PC architecture, in other words, real hogs. The second generation players were moving on a 900MHz Celeron, and the third-generation HD-A3 has a 333MHz MIPS chip. The funny thing is, menus move quicker on the much more affordable third gen, because of Microsoft's improvements on the back end.

In a tear-down evaluation, industrial analyst iSuppli determined that the components of that first $599 Toshiba player actually cost the maker $674 before manufacturing, accessories and packaging. Though neither Microsoft nor Toshiba would acknowledge any losses, Kevin Collins, head of HD DVD promotion for Microsoft, said, "I don't know if they are losing money or breaking even," adding, "We work together to minimize cost." Jodi Sally, VP of marketing at Toshiba America Consumer Products, echoed: "All of this speculation that we're losing money is just speculation," she said. Working with Microsoft, "we've transitioned our lines three times to lower costs. I can't comment on profitability, but we have increased cost production and efficiency."


So whether you are using a Toshiba player or an Xbox 360, you are watching HD DVDs using a hardware/operating-system combo developed in large part by Microsoft. Given the fact that Microsoft isn't always known for stable and intuitive user experiences, it is even more amusing to see Blu-ray and HD DVD side by side.

Compare One Movie on Both Formats

When I compared Warner's Harry Potter and the Order of the Phoenix discs, the Blu-ray edition in a PS3 and the HD DVD in an Xbox 360, the differences were startling. Never mind that the HD DVD has an entire online component that the Blu-ray can't yet implement, with features such as mobile downloads and user-organized live screenings. Never mind that you could watch the entire HD DVD with pop-up actor-commentary windows on screen—if Warner had implemented this in the Harry Potter Blu-ray, it would have been compatible with exactly one currently shipping Blu-ray player.


The surprising thing was, even when you compared the exact same experiences, the HD DVD behaved much better. Every so often an icon appears in the top left corner of the screen, indicating a behind-the-scenes featurette about that particular scene. On the HD DVD, you click it, watch what you want to, then click Enter again to return to the point you left off in the main movie. With the Blu-ray, the system had no way of returning you to the movie; it could only dump you in the featurette menu, where you were stuck watching more of those. Sure, these problems could be Warner's programmers, and not a format issue, but Warner is going for as similar an experience on both, and it clearly can't do everything on Blu-ray that it can on HD DVD. Just have a look at the back of each disc:


The difference is still less subtle when comparing the two editions of 300:


As I discussed previously, Blu-ray has specifications for picture-in-picture, but to date, only one Blu-ray player that has shipped, the Panasonic DMP-BD30, will be able to handle the discs when they start making their way to stores in early 2008. Except for some rumblings from Daewoo, nobody has promised an internet-connected Blu-ray player, while all HD DVD players can. (Samsung's hybrid BD-UP5000 Duo has Ethernet, but only for HD DVD.)

The Hollywood Factor

Studio support was once Blu-ray's ace in the hole—none of this technical crap matters when the movies you want to watch aren't available in a given format—but ever since Paramount and DreamWorks announced exclusive publishing on HD DVD, even Sony chairman Howard Stringer feels a bit shaken. (Fox, Disney, Sony and others are still Blu-ray stalwarts of course.) Some say there's dirty dealing afoot, specifically alleging that Microsoft and the HD DVD group paid $150 million or so to Paramount and DreamWorks to go exclusive. When Michael Bay made these bribery accusations again the other day, along with the accusation that Microsoft was using HD DVD to destabilize Blu-ray in favor of downloads, Jordi Ribas, GM of the HD DVD Group at Microsoft responded:

Microsoft provided no financial incentives to Paramount or DreamWorks. Michael Bay's additional comments about our commitment to HD DVD are similarly unfounded. We have major technology investments in HD DVD...and have more than 100 staff at Microsoft dedicated to the success of HD DVD.


The China Factor

People who are looking to Hollywood to determine the fate of the format war may well be looking in the wrong place. China is where HD DVD's secret to success lies, in a blue-laser format called CH-DVD.


The not-so-secret secret is that a CH-DVD player is an HD DVD player whose laser is set at a different modulation. While you could never play an HD DVD on a CH-DVD player, it is physically more or less the same product. Manufacturing can happen side by side, using the same components such as processors and optical pick-ups.

The funny thing is, HD DVD is known to be region-free—discs from one country can play in HD DVD players from another country. Many discs available on Blu-ray in the US are available on HD DVD elsewhere, making for a higher chance of piracy or at least quasi-legal trade. In our mind, CH-DVD can be an answer to that, an anti-piracy measure coming from a root technological difference. "I guess you could call it a region control," said Collins, "but the Chinese just want to have their own format." Whether this separate-but-equal policy helps the format burgeon, or whether rampant piracy itself is a sign of a healthy format, is for us all to find out.


The upshot of CH-DVD is that, if and when the time is right, China could flood the US market with cheap HD DVD players. Meanwhile, because of this deal, the likelihood of a similar Blu-ray flood gets slimmer. The Venturer is here; keep your eyes peeled at Wal-Mart, Target and other discount big boxes for the next models.


Does the China threat faze Toshiba? It's nice being the one in the spotlight, but Toshiba is well aware that it will soon share the stage with competitors. "There's always a business for a Tier 1 brand in HD DVD players the way there is with DVD players," says Sally. Increased competition will come at the higher end, with combo players from Samsung, LG and possibly Denon, and the premium Onkyo I mentioned above. All of this is good news to Toshiba. Sally adds, "Increasing household penetration of HD DVD players is good overall for the format and for the software [movie] sales."

Black Friday Stalemate

On Black Friday 2007, both the Blu-ray and HD DVD camps released numbers saying they were the overwhelming winner. HD DVD announced it had reached 750,000 in total home penetration (including the Xbox 360 drive). Blu-ray said that it had 2.4 million homes, presumably including PS3. Microsoft argues that all Xbox 360 HD DVD drive purchasers are using them to play HD DVD movies, while not all PS3 buyers are using the game system to play Blu-ray discs. While this is obviously true, there is only unreliable guess work to determine exactly how successful the PS3's Blu-ray drive actually is.


The point is, the format war is far from over, and it's wrong to write off HD DVD now just because it has fewer major japanese manufacturing giants 100% behind it. There's still some time before this whole thing shakes out, but because of the organization and proper planning of the HD DVD camp, Blu-ray no longer looks anything like the predestined victor that it once seemed.